Watson Health Cloud from International Business Machines Corp. (IBM) is the most comprehensive approach to big data in the healthcare industry ever created, and it is only possible as a result of the many formed partnerships, years of collecting data as an IT juggernaut and billions of dollars spent on acquisitions.
Now IBM recently completed another acquisition to improve Watson even more, spending $2.6 billion.
Given the money that IBM has invested in this project, along with the operating costs associated with Watson, the big question is whether these moves will pay off for IBM stock.
IBM Stock: A Look at Watson
Watson is a cloud-based platform that provides healthcare analytics and data sharing to its customers, including hospitals, physicians, insurance companies and even consumers.
The idea is that IBM can use the data it has collected from years of service in the healthcare industry to improve just about every facet and service associated with healthcare.
What IBM did not possess on its own, it has acquired and formed partnerships to make Watson truly unique. Early last year, IBM took a huge step to accelerate the progress of Watson with the acquisitions of Phytel and Explorys.
Explorys is a healthcare database that has 315 billion data points, and Phytel is a platform that allows IBM to analyze the data it collects from Explorys. Collectively, these two acquisitions gave IBM the capabilities to both collect a wide range of healthcare data and also to analyze it, two essential pieces of the Watson puzzle.
IBM then added to this large collection of existing data by partnering with medical device companies like Johnson & Johnson (JNJ) and Medtronic (MDT). In doing so, IBM now collects data from these medical devices with Explorys and analyzes the data with Phytel to help companies, hospitals, insurance companies, patients, etc., better treat diseases and perform certain procedures.
IBM’s $2.6 billion acquisition of Truven Health Analytics represents the latest in a series of moves to improve Watson.
What IBM gains is 8,500 clients that are mostly healthcare providers, governments, life sciences and other enterprises, along with a cloud-based platform with healthcare cost, claims and procedure outcome data to build on Watson’s existing data.
Will These Bets Pay off for IBM Stock?
All things considered, any one can see that IBM is betting big on healthcare analytics, and in doing so has positioned itself as the unchallenged leader in this space. Ultimately, it is a move that may save IBM stock.
By 2020 healthcare analytics will be a $21 billion market. And IBM will dominate this market due to Watson. The opportunity of Watson, however, spans beyond healthcare analytics and into Big Data as a whole.
While this is a much more crowded market, it is growing at an annualized rate of 26.5% through 2018, at which point it will be valued at $41.5 billion.
Combined, this is a massive market opportunity that can add to IBM’s data, cloud and engagement businesses. Last year, these businesses accounted for 35% of total revenue according to Morgan Stanley, and grew 17% compared to 2014.
With Watson being a new business, it will add to the growth that the likes of SoftLayer is creating, and the $9 billion-plus IBM is creating from the cloud.
In other words, these are great moves that IBM is making, both for its business and to push IBM stock in the right direction.
As of this writing, Brian Nichols was long IBM stock.
